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Should Investors Breathe a Sigh of Relief now that the United States has a Budget?

by
December 19, 2013 11:56 am
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A budget has not been passed by the United States Senate since April 2009.

Now there is one for the next two years, thanks to the good work or Representative Paul Ryan (R-WI), Chair, of the House Budget Committee, and Senator Patty Murray (D-WA), Chair of the Senate Budget Committee, along with bipartisan support in both houses of the United States Congress. This is a bullish development for companies that do business with the United States Government such as United Technologies Company (NYSE: UTX), L-3 Communications (NYSE: LLL), SAIC Corporation (NYSE: SAIC), and Oshkosh Truck Corporation (NYSE: OSK).

More importantly, it is very bullish for the stock market as a whole, and for the entire United States economy.

It was not that long ago, August 2011, that American Government debt was downgraded for the only time in its history. Since then, it has been restored. But the fact is happened is a lesson for all.

With the budget set for the next two years, there should be no more Federal Government shutdowns like the one that just took place. The deviseness that will occur from the Affordable Care Act, or ObamaCare, will result in more than enough acrimony. With 2014 an election year and the control of the Senate now in play, the political atmosphere will only become more rancorous as November 5th draws nearer.

That is why a two-year budget package passed with bipartisan support is so important for the country.

The quantitative easing policies of the Federal Reserve have obscured a very important fact: there are not enough buyers for United States Treasury securities at such low interest rates. If there were, the Federal Reserve would not have expanded its balance sheet more than $3 trillion dollars over the past six years through the acquisition of securities no other buyers wanted. That is running at the rate of close to one trillion dollars annually.

While it is being trimmed back slightly, it is still continuing, which is not a good thing.

The new budget law is an important step towards restoring investor confidence in the United States Government. There has been a bull market for American stocks but a bear market for United States Treasury bonds in recent years. With the new budget law in effect for the next years, that will hopefully convince investors that the debt of the United States Government has a place in a portfolio.

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